appreciation

2. Used to distinguish between securities that are likely to provide profits because of increases in price and those that provide dividend payments.

Appreciation.

When an asset such as stock, real estate, or personal property increases in value without any improvements or modification having been made to it, that's called appreciation.

Some personal assets, such as fine art or antiques, may appreciate over time, while others -- such as electronic equipment -- usually lose value, or depreciate.

Certain investments also have the potential to appreciate. A number of factors can cause an asset to appreciate, among them inflation, uniqueness, or increased demand.

appreciation

or

capital appreciation

an increase in the price of an ASSET. Assets held for long periods, such as factory buildings, offices or houses, are most likely to appreciate in value because of the effects of INFLATION and increasing site values, though the value of short-term assets like STOCKS can also appreciate. Where assets appreciate their REPLACEMENT COST will exceed their HISTORIC COST and such assets may need to be revalued periodically to keep their book values in line with their market values.

an increase in the EXCHANGE RATE of a currency against other currencies under a FLOATING EXCHANGE RATE SYSTEM, reflecting an increase in market demand for that currency combined with a decrease in market demand for other countries’ currencies. The effect of an appreciation is to make imports (in the local currency) cheaper, thereby increasing import demand, and EXPORTS (in the local currency) more expensive, thereby reducing export demand, ultimately working towards keeping a country's BALANCE OF PAYMENTS in equilibrium on a more or less continuous basis.

Appreciations, like REVALUATIONS, can adversely affect the profitability and market position of domestic firms by making imports more price competitive in the home market and, similarly, reducing their price competitiveness in export markets. See REVALUATION, definition 2, for further discussion. Contrast with DEPRECIATION, definition 2, EXCHANGE RATE EXPOSURE.

How successful an appreciation is in removing a payments surplus depends on the reactions of export and import volumes to the change in relative prices; that is, the PRICE ELASTICITY OF DEMAND for exports and imports. If these values are low, i.e. demand is inelastic, trade volume will not change very much and the appreciation may in fact make the surplus larger. On the other hand, if export and import demand is elastic then the change in trade volumes will operate to remove the surplus. BALANCE-OF-PAYMENTS EQUILIBRIUM will be restored if the sum of export and import elasticities is greater than unity (the MARSHALL-LERNER CONDITION). See REVALUATION for further points. Compare DEPRECIATION 1. See INTERNAL-EXTERNAL BALANCE MODEL.

an increase in the price of an ASSET and also called capital appreciation. Assets held for long periods, such as factory buildings, offices or houses, are most likely to appreciate in value because of the effects of INFLATION and increasing site values, though the value of short-term assets like STOCKS can also appreciate. Where assets appreciate, then their REPLACEMENT COST will exceed their HISTORIC COST, and such assets may need to be revalued periodically to keep their book values in line with their market values.

appreciation

The process of increasing in value. As a practical matter, although the IRS allows taxpayers to depreciate real property improvements as if they were becoming less valuable over time and will eventually be worthless, real property generally appreciates over time with proper maintenance and repair.

Investors are being forced to change their portfolio ratios, and there is more institutional money being poured into real estate while other alternative investments are not offering an equivalent stable ROI along with the associated asset appreciation and tax advantages.

In any case, the annual gift tax exclusion is a great way to remove wealth and asset appreciation from an estate; it should not be forgotten amidst the more advanced planning techniques discussed below.

Combined with the severe shake-out in the technology market, higher borrowing costs might just have persuaded consumers that stock markets do not go up in a straight line forever and that at some stage you cannot forever borrow against asset appreciation.

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